Oman Free Zones or Oman Onshore: Where Best to Operate?

Establishing an entity in a free zone area offshore Oman – as opposed to establishing it onshore Oman – has its many advantages and privileges.  These include: 100% foreign ownership, no minimum capital requirements, no custom duties, and a strategic location on the international trade route, among others. In addition, all free zones in Oman offer a single window (one-stop shop) through which licenses, permits and approvals can be obtained in an effort to streamline procedures required to set up entities within them.  The authority to set up such a one-stop shop has been accorded to free zones via Royal Decrees.  For example, Article (13) of Royal Decree 79/2013 – Issuing the Regulation for the Special Economic Zone at Duqm – states that the free zone authority shall have the functions of the General Secretariat of the Commercial Register at the Ministry of Commerce and Industry regarding the registration of projects,  meaning that the free zone authority will be able to issue approved commercial registration documents to set up entities in the zone.

The procedures required in order to set up an entity in a free zone area differ from those required to set up an entity in onshore Oman.

In order to set up an entity in onshore Oman, the party aiming to establish the entity must complete the following steps:

• Step 1 – Set up a bank deposit of the required capital;
• Step 2 – Register the entity commercially via the Ministry of Commerce and Industry’s one-stop shop; submit an application form with the necessary documents and pay the necessary fees;
• Step 3 – Obtain licenses and permits required from the relevant ministries and authorities, which will depend on the nature of the business being established; and
• Step 4 – Obtain a permit from the Muscat Municipality; this step entails submitting all the approved applications from other relevant ministries and authorities, and paying the required fees.

In order to set up an entity in a free zone offshore Oman, the party aiming to establish the entity must complete the following steps:

• Step 1 – Submit a plot application form along with other necessary application forms to the designated one-stop shop at the free zone;
• Step 2 – Obtain the internal approval of the free zone and be allocated a plot; this step entails obtaining a letter of “no objection” from the free zone, completion of a due diligence report on the entity being established, the selection of a plot and the payment of the required fee amount; and
• Step 3 – Sign the land lease agreement.

The application forms required to set up the entity in the free zone depend on the nature of the entity being established. The following table highlights the required forms depending on whether the entity being established will be a limited liability company or a branch of an existing company:

	Limited Liability Company	Branch of an Existing Company
1	Copy of current Certificate of Registration of the company or Certificate of Good Standing	Copy of the Certificate of Incorporation or Certificate of Good Standing of the parent company
2	Copy of the Memorandum and Articles of Association	Copy of the Memorandum and Articles of Association of the parent company
3	Original board resolution specifying establishment at the free zone area and appointment of manager along with a copy of his passport and specimen of signature	Original board resolution stating the setting up of a branch at the free zone area and appointment of a manager for the branch along with a specimen of his signature and a copy of his/her passport

All of the above documents are to be notarised by a notary public in the country of its origin and attested and consularised up to the Omani Embassy situated therein. 

A New Law Re-defining Some of the MOCI's Responsibilities

Royal Decree 11/2017 (the “New Law”) issued on 12 March 2017 seeks to redefine some of the specialisations (i.e., responsibilities) of the Ministry of Commerce and Industry (“MOCI”).  In other words, under the New Law, a number of the MOCI’s responsibilities have been reallocated to other departments, for example, responsibilities concerning the mining sector, commercial ventures concerning artistic works, and consumer protection.  This article summarises some of the key changes to the specialisations of the MOCI and aims to provide an overview on the changes.

The New Law repeals Royal Decree 102/2005 (the “Old Law”) which originally determined the MOCI’s structure and specialisations.

In practice, the MOCI undertakes various activities through the numerous departments.  These activities include governing commercial entities, facilitating the commercial and industrial sides of the relationship between the Sultanate of Oman and other countries, generally improving the various sectors and their contributions to the economy as well as many other matters in relation to the commercial and industrial sectors in the Sultanate.

The New Law specifies the various activities that the MOCI shall undertake.  Further, there are a number of activities that have been removed from the MOCI’s responsibilities.  For example, Royal Decree 49/2014 had established the Public Authority for Mining (the “Mining Authority”) and specifically noted that the Mining Authority is to form part of the MOCI.  However, the New Law does not mention the Mining sector at all, in contrast to the Old Law which specifically mentioned that the MOCI governs improving the relationship between the Sultanate and other countries in the commercial, industrial and mining sectors.  This change can be construed as granting the Mining Authority greater autonomy from the MOCI.

Another example of the amendment made by the New Law is the exclusion of the MOCI from inspecting shops and commercial establishments that operate in the sector of artistic works.  Omitting these provisions from the New Law suggests that this task has been reallocated to a different branch of the government apparatus.

Another important amendment concerns the task of specifically protecting the consumer and spreading awareness in this regard.  Previously, the MOCI was tasked with all matters in relation to consumer protection. However, Royal Decree 26/2011 established the Public Authority for Consumer Protection (the “PACP”).  Therefore, tasks in relation to consumer protection were transferred through Royal Decree 53/2011 to the PACP including the task of protecting consumers and spreading awareness in relation to these matters.  Certain matters in relation to products and commodities have remained under the authority of the MOCI, such as determining the specific measurements of certain products and inspecting their quality.  However, the main task of protecting the consumer has now been transferred to PACP, who in certain matters may consult the MOCI for certainty.

Generally, the New Law can be seen as an amendment to and replacement of the Old Law in many provisions and an accounting of the changes that have taken place in the past twelve years, as aforementioned. Certain other provisions have remained the same or have been partly amended in a manner as to improve the structure and interpretation of the law.

Establishing a Non-Profit Organisation in Oman

Applicable law

The establishment of a charitable organisation falls within the scope of the Civil Association Law - Sultani Decree 14/2000 (the “CAL”) rather than the Commercial Companies Law - Sultani Decree 4/74 (the “CCL”). The CAL is implemented and regulated by the Ministry of Social Development (the “MSD”) and governs the conduct of any form of communal or charitable work, or the operation of associations for socio-cultural or developmental purposes, through the establishment and operation of not-for-profit entities. Companies or individuals that are seeking to establish an Association must consider formally registering the Association in MSD. The MSD is authorised to impose penalties if an Association does not comply with CAL.

The CCL is not applicable to not-for-profit purposes, or for social, cultural and charitable activities, as a commercial company is essentially a contract by which two or more persons undertake to participate in an enterprise for profit, with a view to sharing any profit or loss resulting from the enterprise. Article 131 of the CCL provides that a “limited liability company is a commercial company with a fixed capital divided into equal shares.” Therefore, it is the element of profit that distinguishes a company from a charitable organisation, causing a charitable organisation to fall within the ambit of the CAL.

Article 1 of the CAL defines an “Association” as “any permanent group of natural persons organized to achieve purposes other than profit making and aiming at performing social, cultural or charitable activities. This includes associations, social and cultural clubs established by private institutions, companies and organizations, regardless of the name given to them, even if physical sports are among their activities, unless sports are the main activity of the association or the club.” An Association is permitted, by Article 4 of the CAL, to engage in the activities of providing care for orphans, children and mothers; women’s services; care for the elderly; and care for people with handicaps and special needs.

In the event that an activity which is intended to be undertaken by an Association is not provided for by Article 4 of the CAL, then the MSD must, upon receipt of a written application from the intending sponsors of the Association, obtain the prior approval of the Council of Ministers for the activity to be conducted by the applicant Association.

The establishment of an Association under CAL

In order to establish an Association, Article 9 of the CAL requires the founding members to elect from amongst themselves the first board of directors of the Association, of whom one member must be authorised to act on behalf of the Association for the registration of the Association. The registration application is submitted to the MSD together with copies of documents signed by the chairman of the board and the coordinator, including names of the founding members and the board members; minutes of the founding members’ meeting; minutes of first board of directors’ meeting; and board of directors resolution nominating the person to be responsible for undertaking and completing the registration of the Association and the by-laws of the Association.

Once the above documents are submitted, the MSD shall, subject to its right of refusal under Article 11, register the Association. The Association then acquires its legal personality from the date of publication of its registration in the Official Gazette.

The Association remains under the general supervision of the MSD in accordance with Article 17 of the CAL. Supervision is undertaken by investigators appointed by the MSD, who have the right to enter the premises of the Association and examine its registers, books, documents and correspondence. The MSD must be informed, in writing, of each meeting of the general assembly of the Association at least fifteen days prior to the meeting and must be provided with the agenda and the accompanying documents in accordance with Article 23 of the CAL. The MSD is to be informed of the results of the Association’s board meetings, as well as resolutions passed at such meetings. Copies of the minutes of the meeting are to be sent to the MSD within fifteen days from the date of each meeting, pursuant to Article 32. Article 33 gives MSD the right to annul the decisions of a board meeting if the meeting was convened in violation of the law or the by-laws of the Association.